Correlation Between ProShares UltraShort and Financial Select
Can any of the company-specific risk be diversified away by investing in both ProShares UltraShort and Financial Select at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining ProShares UltraShort and Financial Select into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between ProShares UltraShort Nasdaq and Financial Select Sector, you can compare the effects of market volatilities on ProShares UltraShort and Financial Select and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in ProShares UltraShort with a short position of Financial Select. Check out your portfolio center. Please also check ongoing floating volatility patterns of ProShares UltraShort and Financial Select.
Diversification Opportunities for ProShares UltraShort and Financial Select
0.12 | Correlation Coefficient |
Average diversification
The 3 months correlation between ProShares and Financial is 0.12. Overlapping area represents the amount of risk that can be diversified away by holding ProShares UltraShort Nasdaq and Financial Select Sector in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Financial Select Sector and ProShares UltraShort is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on ProShares UltraShort Nasdaq are associated (or correlated) with Financial Select. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Financial Select Sector has no effect on the direction of ProShares UltraShort i.e., ProShares UltraShort and Financial Select go up and down completely randomly.
Pair Corralation between ProShares UltraShort and Financial Select
Considering the 90-day investment horizon ProShares UltraShort Nasdaq is expected to generate 2.59 times more return on investment than Financial Select. However, ProShares UltraShort is 2.59 times more volatile than Financial Select Sector. It trades about 0.25 of its potential returns per unit of risk. Financial Select Sector is currently generating about -0.01 per unit of risk. If you would invest 1,794 in ProShares UltraShort Nasdaq on January 25, 2024 and sell it today you would earn a total of 200.00 from holding ProShares UltraShort Nasdaq or generate 11.15% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 95.45% |
| Values | Daily Returns |
ProShares UltraShort Nasdaq vs. Financial Select Sector
Performance |
| Timeline |
| ProShares UltraShort |
| Financial Select Sector |
ProShares UltraShort and Financial Select Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with ProShares UltraShort and Financial Select
The main advantage of trading using opposite ProShares UltraShort and Financial Select positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ProShares UltraShort position performs unexpectedly, Financial Select can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Financial Select will offset losses from the drop in Financial Select's long position.The idea behind ProShares UltraShort Nasdaq and Financial Select Sector pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.| Financial Select vs. Virtus InfraCap Preferred | Financial Select vs. XAI Octagon Floating | Financial Select vs. Amplify High Income | Financial Select vs. Triplepoint Venture Growth |
Check out your portfolio center.Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.
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